frsbog_mim_v39_0330.pdf
TRANSCRIPT
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(Superseding X-7403)
FEDERAL RESERVE SYSTEM.
The
Federal Reserve System
w as
es tab l i shed pursuant
t o
au tho r i t y
conta ined i n t h e Ac t o f December 2 3 , 1 9 1 3 , known a s t h e Federal Reserve A c t ,
t h e
purposes
of
which,
a s
s t a t e d
i n t h e
preamble,
a r e T o
provide
f o r t h e
es tab l i shment
of
Federal reserve banks,
t o
f u r n i s h
a n
e l a s t i c c u r r en c y,
t o
afford means of rediscounting commercial paper, t o e s t a b l i s h a more effec-
t i ve supe rv i s ion
o f
banking
i n t h e
Uni ted S ta tes ,
a nd f o r
other purposes .
t r
The System comprises t h e Fed eral Reserve Board, which ex er ci se s su per vis ory
f u n c t i o n s , t h e Federal Advisory Council, which acts i n a n advisory capaci ty
t o t h e Federal Reserve Board, t h e twelve Federal reserve banks s i tuated i n
d i f f e r e n t s e c t i o n s o f t h e Uni ted S ta tes , t h e F ed er al Open Market Committ ee,
a n d t h e member banks, which include a l l nat ional banks an d such State banks
and trust companies a s have vo lu nt a r i l y appl ied t o t h e Federal Reserve Board
f o r membership a n d have been admitted t o t h e System.
The Federal reserve banks a r e l o c a t e d i n Boston, New York, Phi la-
delphia, Cleveland, Richmond, Atlanta, Chicago,
S t .
Louis, Minneapolis,
Kansas City, Dallas and San Fra nci sco . There a r e a l so i n opera t ion twenty-
f ive branches
and two
agencies
of t he
Federal reserve banks,
a l l o f
which
a r e loca t ed i n o t h e r c i t i e s o f t h e United St at es , except one agency i n
Havana, Cuba.
The cap i t a l s t ock o f t h e Federal reserve banks i s entirely owned
b y t h e
member banks
and may not be
t r a n s f e r r e d
o r
hyp oth eca ted . Every
nat ional bank i n e x i s t e n c e a t t h e time o f t h e es tab l i shment o f t h e Federal
Reserve System w as r equ i r ed t o subscr ibe t o t h e cap i t a l s t ock o f t h e Federal
reserve bank o f i t s d i s t r i c t i n a n amount equal t o s i x p e r cent of t he
subscr ib ing bank*s cap i ta l
and
su rp lus .
A
l i k e amount
of
Federal reserve
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bank stock must be subscribed f o r by every national bank organized since that
time and by every State bank or trus t company except mutual savings banks)
upon becoming a member of the Federal Reserve System; and when a member bank
increases i t s capital or surplus, i t i s required t o subscribe f o r additional
stock
i n the
same proportion.
One
half
of
each subscription must
b e
fully paid
and the
remainder
i s
subject
t o
cal l
by the
Federal Reserve Board;
but
ca l l
f o r
payment
o f the
remainder
has not
been made.
A
mutual savings bank which
i s a d -
mitted
t o
membership
i n the
Federal Reserve System must subscribe
f o r
Federal
reserve bank stock in an amount equal t o six-tenths of one pe r centum o f i t s
tota l depos i t l iab i l i t i e s ; and thereafter such subscription must be adjusted
semi-annually on the same percentage basis.
After a l l necessary expenses of a Federal reserve bank have been paid
or provided f o r i t s stockholding member banks are ent i t led to receive an annual
dividend o f s i x per cent on the paid-in capital stock, which dividend i s cumu-
l a t i v e . After these dividend claims have been f u l l y m et the ne t earnings are
paid into th e surplus fund of the Federal res erve bank. Federal reserve banks,
including th e capital stock and surplus therein and the income derived there-
from,
are
exempt from Federal, State
and
lo ca l tax ation, except taxe s upon real
estate.
The board o f directors of each Federal reserve bank i s composed of
nine members, equally divided into three classes, designated Class A Class B
and Class C. Directors o f Class A are representative of the stockholding member
banks. Directors of Class B must be actively engaged i n the ir d is t r ic t in com-
merce, agriculture or some other industrial pursuit, and may no t b e of f icers ,
directors or employees of any bank. Class
C
directors may n ot oe off icers*
directors, employees, or stockholders of any bank. S i x o f the nine directors>
those o f Class A and Class
B,
are e lected by the stockholding member banks,
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while t h e Federal Reserve Board appoints t h e three Class C d i r e c t o r s . The term
of o f f i c e of each d i rec to r i s th ree y ea r s , so arranged that t h e term o f on e d i r -
e c t o r
of
each cl as s exp ir es each ye ar .
One of the
Class
C
d i re c t o r s appoin ted
by th e
Board
i s
d es ig n a ted
a s
chairman
o f t h e
board
of
d i r e c t o r s
o f t h e
Fed era l re se rv e bank
a n d a s
Federal
reserve agen t ,
a n d i n t h e
l a t t e r c a pa c i ty
h e i s
req u i red
t o
main ta in
a
local
o f f i c e o f t h e Federal Reserve Board o n t h e premises o f t h e Fed er al re se rv e bank.
Another Class C d i r e c t o r i s appointed by th e Federal Reserve Board a s deputy
chairman.
Fed er al re se rv e banks a r e au tho ri ze d, among oth er thi ng s, t o discount
f o r t he ir member banks not es , d r a f t s , b i l l s of exchange an d bankers
1
acceptances
o f sh o rt ma t u r i t i e s a r i s in g ou t o f commercia l , indust r ia l an d a g r i c u l t u r a l t r a n -
s a c t i o n s , an d sho rt term paper sec ured b y o b l i g a t i o n s o f t h e Uni ted S ta tes ; t o
make advances t o t h e i r member banks upon t h e i r prom iss ory note s f o r p er io d s no t
exceeding ninety days upon t h e s e c u r i t y of p ap er e l ig ib le f o r d iscount o r p u r -
chase
a n d f o r
p er io d s
n o t
exceeding f if teen days upon
t h e
s e c u r i t y
of
o b l i g a -
t i o n s
o f t h e
United States
and
c e r t a i n o t he r s e c u r i t i e s
i n
ce r t a in ex cep t io n a l
c i rcumstances
and
under cer ta in p rescr ibed condi t ions ,
t o
make advances upon
other k inds of s e c u r i t y t o groups of member banks a n d , until March 3 , 1 9 3 4 ,
o r f o r such addit ional period n o t exceeding one year a s t h e P r e s i d e n t may
p r e s c r i b e , t o in di vi du al member banks; t o make loans, until t h e Pres iden t
shal l o therwise declare and in no event after March 2 4 , 1 9 3 4 , t o nonmember
banks o r t ru s t companies under cer ta in pre sc ri bed condi t ion s upon se cu ri ty
which may or may not be e l i g i b l e f o r red i sco u n t ; i n unusual a n d exigent circum-
stances when authori ty h a s been granted b y a t least five members o f t h e Federal
Reserve Board, t o discount f o r i n d i v i d u a l s , p a r t n e r s h i p s o r corporat ions, under
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ce r t a i n p resc r ib ed co n d i t io n s , n o tes , d r a f t s and b i l l s of exchange o f t h e kinds
an d matu r i t i e s mad e e l ig ib le f o r discount f o r member banks; t o make advances t o
i n d i v i d u a l s , p a r t n e r s h i p s o r corporations upon their promissory notes secured
b y d i r e c t o b l i g a t i o n s o f t h e Uni ted S ta tes f o r p er io d s n o t exceeding ninety
days;
t o
purchase
and
s e l l
i n t h e
open market ban ker s' acce ptan ces
an d
b i l l s
o f
exchange
o f t h e
kinds
and
m a t u r i t i e s e l i g i b l e
f o r
d i sco u n t ,
a n d
o b l ig a t io n s
o f t h e
Uni ted S ta tes ;
t o
deal
i n
gold coin
and
b u l l i o n ;
t o
r e c e i v e
a n d
hold
on
deposi t
t h e
reserve balances
o f
member banks;
t o
issue Federal reserve notes
an d Federal reserve bank notes; t o a c t a s clear ing houses and a s c o l l e c t i n g
agen ts f o r their member banks, an d under ce r t a i n cond i t ions f o r nonmember banks
i n t h e c o l l e c t i o n of checks an d o ther ins t ruments ; t o a c t a s d e p o s i t a r i e s and
f i s c a l a g e n t s o f t h e Uni ted S ta tes ; and to exercise other banking functions
s p e c i f i e d i n t h e Federal Reserve Ac t .
Federal reserve notes a r e a f i r s t and paramount lien o n a l l t h e a s -
s e t s o f t h e Federal reserve banks through which they a r e i s su ed a n d a r e also
o b l i g a t i o n s
o f t h e
United St a te s . They
a r e
issued agains t
t h e
s e c u r i t y
o f
gold
and of
commercial
an d
agr icu l tu ra l paper d iscounted
o r
purchased
b y F e d -
era l reserve banks ,
a n d ,
until March
3 , 1 9 3 4 ,
when authorized
b y t h e
Federal
Reserve Board,
may
a l s o
b e
secured
b y
d i r e c t o b l i g a t i o n s
o f t h e
Uni ted S ta tes .
Every Federal reserve bank i s req u i red t o main ta in r ese rv es i n gold o f n o t less
th an 4 0 p e r cent against i t s Federal reserve notes i n a c t u a l c i r c u l a t i o n a n d i s
also requ i red t o main ta in r ese rv es i n gold o r lawful money o f n o t less th an 35
p e r cent against i t s d ep o s i t s .
Federal reserve bank notes a r e t h e o b l i g a t i o n s o f t h e Federal reserve
bank procuring them a n d a r e redeemable i n lawful money of t h e Uni ted S ta tes on
p r e s e n t a t i o n a t t h e United States Treasury o r a t t h e bank o f i ss ue . They a r e
i ssued agains t t h e s e c u r i t y of d i rec t o b l ig a t io n s o f t h e Uni ted S ta tes i n a n
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amount equal t o t h e face value of such obligat ions a n d a g a i n s t t h e secu r i ty
of n o t e s , d r a f t s , b i l l s of exchange an d bankers
1
acceptances i n a n amount
equal t o n o t more than ninety p e r cent o f t h e es t imated value thereof .
Each Federal reserve bank maintains on d ep o s i t i n t h e Treasury o f t h e United
S ta tes i n lawful money a redemption fund equal t o f i v e p e r cen t of i t s l i -
a b i l i t y
o n
Federal reserve bank notes
i n
a c t u a l c i r c u l a t i o n ,
o r
such other
amount
as may be
req u i red
b y t h e
Treasurer
o f t h e
United St at es with
t h e
approval
o f t h e
Secre ta ry
o f t h e
Treasury,
a n d i s
req u i red
t o p a y a t a x o f
o n e- fo u r th
of one per
cent each half year upon
t h e
average amount
of i t s
Feder al res er ve bank note s i n c i r c u l a t i o n # No such Fed era l r es er ve bank
notes may be i s s u e d a f t e r t h e President shal l have declared b y proclamation
t h a t t h e emergency recognized b y h i m i n h i s proclamation of March 6, 1933 ,
h a s term inat ed, unl ess such notes a r e secured b y t h e d ep o s i t of bonds of t he
United States of cer ta in c lasses which a r e e l i g i b l e a s s e c u r i t y f o r nat ional
bank notes.
Broad supervisory powers a r e ves ted i n t h e Federal Reserve Board,
which
ha s i t s
o f f i c e s
i n
Washington.
The la w
d es ig n a tes
t h e
Secre ta ry
of
t h e
Treasury
a n d t h e
Comptroller
o f t h e
Currency
a s
ex-officio members,
and
provides f o r t h e appointment o f s i x members b y t h e Pres iden t wi th t h e advice
and consent o f t h e Sen a te . I n se lec t in g th ese s i x members, t h e Pres iden t
i s req u i red t o have a due regard t o a f a i r r e pr e s e n t a t i o n o f t h e f i n a n c i a l ,
a g r i c u l t u r a l , i n d u s t r i a l a n d commercia l in teres ts , an d geograph ical d iv is ions
o f t h e co u n t ry . No tw o appointive members may be from t h e same Federal r e -
s e r v e d i s t r i c t .
Among t h e more important duties o f t h e Federal Reserve Board a r e
t h e rev iew and d e te rmin a t io n of discount rates charged b y t h e Federal
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reserve banks on th ei r d iscounts a n d advances an d superv is ion over t h e open
market operat ions o f t h e Fede ra l re se rv e bank s. Such open market op er at io ns
a r e conducted under re gu la ti on s adopted b y t h e Fed era l Reserve Board wi th a
view t o accommodating commerce a n d business and with regard t o thei r bear ing
upon t h e g e n e ra l c r e d i t s i t u a t i o n o f t h e country . The Federal Open Market
Committee, which makes recommendations with regard t o open market ope ra ti ons ,
was c r e a t e d b y t h e l a w a n d c o n s i s t s of twelve members, o n e member being s e -
lec ted annual ly
b y t h e
board
of
d i r e c t o r s
of
each Federal reserve bank.
The
meetings
o f t h e
Committee
a r e
held
i n
Washington
a t
least four t imes each
year upon
t h e
c a l l
o f t h e
Governor
o f t h e
Federal Reserve Board
o r a t t h e
r eq u es t
of any
three members
of t h e
Committee.
I n connection with i t s su p erv i s io n of Federal reserve banks t h e
Federal Reserve Board i s also au thor ized t o make examinations of such banks;
t o requ i re s ta tements and re po rt s from such banks; t o r e q u i r e t h e e s t a b l i s h -
ment or d iscon t inuance of branches of such banks; t o superv ise t h e issue and
r e t i r e m e n t of Federa l reserve no tes ; a n d t o exerc ise specia l superv is ion over
a l l r e l a t i o n s h i p s and t r a n s a c t i o n s o f t h e Federa l res erv e banks with for ei gn
banks
o r
bankers .
Th e
Federal Reserve Board also passes
o n t h e
admission
of
State
banks
and
trust companies
t o
membership
i n t h e
Federal Reserve System
and on
t h e
te rmin a t io n
of
membership
of
such banks;
i t h a s t h e
power
t o
examine
member banks a n d t h e a f f i l i a t e s of State member banks; i t receives cond i t ion
r e po r t s fr om S t a t e member banks and t h e i r a f f i l i a t e s ; i t l i m i t s b y r e g u l a -
t i o n t h e r a t e o f in te res t wh ich may be paid by member banks on t ime and
sav ings deposi t s ; i t i s au th o r i zed , i n i t s ' d i s c r e t i o n , t o i s su e v o t in g p e r -
mits t o ho ld ing company a f f i l i a t e s o f .member banks entitling them t o vote
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t h e stock of such banks a t e l e c t i o n s of d i r e c t o r s a n d i n deciding quest ions
a t
meetings
of
shareholders
and t o
i ssue permi ts cover ing cer ta in re la t ions
between member banks
an d
organiza t ions dea l ing
i n
s e c u r i t i e s ;
i t h a s t h e
power t o remove off icers an d d i r e c t o r s of member banks, f o r cont inued v io la -
t i o n s of law or unsafe o r unsound practices i n conduct ing t h e bus iness of
such bank;
i t m a y, i n i t s
d i s c r e t i o n , suspend member banks fr om
t h e u s e o f
t h e c r e d i t f a c i l i t i e s o f t h e Federal Reserve System, f o r making undue use
of bank c red i t f o r speculat ive purposes o r f o r a n y other purpose in co ns is te nt
with t h e maintenance of sound credi t condi t ions; i t passes on app l i ca t i ons
of
nat ional banks
f o r
a u t h o r i t y
t o
exercise t rust powers
o r t o a c t i n
f i d u c i -
a r y c a p a c i t i e s ; i t may g ran t au tho r i t y t o nat ional banks t o es tab l i sh branches
i n fo re ign coun t r i e s o r dependencies o r in su l a r pos se s s ions o f t h e United
S t a t e s , o r t o i n v e s t i n t h e s tock of banks or corporat ions engaged i n i n t e r -
n a t i o n a l o r fo re ig n banking; i t superv ises t h e o rgan iza t i on and a c t i v i t i e s
of
corporations organized under Federal
l a w t o
engage
i n
i n t e r n a t i o n a l
o r
fore ign banking; a n d i t issues permits under t h e au tho r i t y g r an t ed b y t h e
provis ions o f t h e Clayton Ant i t ru s t A ct r e l a t i n g t o i n t e r l o c k i n g d i r e c t o r a t e s .
Another funct ion o f t h e Board i s t h e opera t ion o f t h e gold set t lement fund,
b y which balances due t o and from t h e various Federal reserve banks arising
out o f t h e i r own t r a n s a c t i o n s or those of their member banks a r e s e t t l e d i n
Washington with out ph ys ic al shipments of gold.
I n exo rc i s ing i t s supervisory funct ions over t h e Federal reserve
banks and member banks, t h e Federal Reserve Board promulgates regulations,
pursuant t o au tho r i t y g r an t ed b y t h e Federal Reserve A c t , governing cer ta in
o f t h e
above-ment ioned ac t iv i t i es
of
Federal reserve banks
an d
member banks.
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To meet i t s expenses a n d t o p a y t h e s a l a r i e s o f i t s members a n d i t s employees,
t h e
Board makes semi-annual assessments upon
t h e
Federal reserve banks
i n
propor t i on t o the i r c ap i t a l s t ock an d su rp lu s . Annual re po rt s o f the opera-
t i o n s
o f the
Board
a r e
made
t o t h e
Speaker
o f t h e
House
of
Representa t ives
f o r t h e
in fo rma t ion
of
Congress
a s
requi red
b y l a w .
The Federal Advisory Council acts i n a n advisory capac i ty , confer -
r ing with
t h e
Federal Reserve Board
on
general business condi t ions
and
making
recommendations concerning matters within t h e B o a r d ' s j u r i s d i c t i o n and the
g e n e r a l a f f a i r s
o f t h e
Federal Reserve System#
The
Council
i s
composed
of
twelve members, one from each Federal reserv e d i s t r i c t being sel ect ed annual-
l y b y t h e
board
of
d i r e c t o r s
o f t h e
Federal reserve bank
o f t h e
d i s t r i c t .
The
Council
i s
r equ i r ed
t o
meet
i n
Washington
a t
l e a s t fou r times each year
and o f t e n e r i f c a l l e d b y t h e Federal Reserve Board.
October 1 , 1933 .